Equities and the economy

For the third consecutive day it was a mixed bag for stocks with the Dow and S&P 500 rising 51 and 3 points, respectively and the Nasdaq closing down 25. It was another day where stocks began the day weak and closed marginally better. For example, in early trading the S&P was down 9 points and the Nasdaq was down 62. Weighing on the Dow was Apple which fell 6.3% yesterday after reporting a fall in quarterly revenues which was the first time that’s happened in 13 years. The Fed concluded their two day meeting yesterday and did as expected leaving interest rates unchanged. However, in their post meeting communique (there was no press conference) they removed all references to global risks with significance being they may be paving the road for an interest rate hike when they meet next in June. However, the market is pricing in only a 21% probability they’ll raise the rate at that meeting. The Fed stated that the labor market continues to improve, weekly jobless claims hit a 4 decade low last week, although economic activity growth appears to have slowed. Additionally, they’re not seeing any inflation pressure yet further justifying the lack of action. Complicating matters for the June meeting is the Fed will have to grapple with the June 23rd U.K. referendum on whether to remain in Europe.

On a side note, Ford reported earnings, and it’s been a very good quarter for them. Net income surged 113% and records were set for global and North American operating margins, thanks to robust pricing of its F-150 pickup in North America and improved profit in Europe. There always has been and there continues to be a strong correlation between what vehicles consumers buy and the price of gasoline with Ford noting trucks and SUV’s are selling well; not so cars, and I don’t have to tell you how cheap gasoline has been lately.

Regarding fundamental data, the housing market continues to show strength with the National Association of Realtors reporting its index of pending home sales rising to 1.4% to 110.5 in March which was not only greater than expectations but at the highest level in 11 months.

Something happened overnight while you slept and it’s causing a tsunami in the markets today. Numerous times this week I’ve told you that the Bank of Japan’s (Japan’s central bank) monetary policy committee was meeting and that its decision was being more closely watched than the Fed’s. Now as a preface, you know I am always talking about central bank interest rates. What happened last night in Tokyo is why. It was wieldy expected that the BOJ was going to ease monetary policy in some way because the yen had moved materially stronger vs. the dollar hurting exports with no inflation present in the economy. Well they didn’t. The result was the Nikkei got hammered closing down 3.61% and the yen skyrocketed from 112 yen/dollar to its current level of 108.6. The European markets are all trading in the red and the Dow is down 56 which is much better than earlier today when futures were down over 100 points. Now you see why I closely follow central bank interest rate policy.

Oil

Yesterday the DOE released its weekly crude and products report and which, sparing you all the numbers, came in bearish. All three individual categories, crude, gasoline and product inventories, showed builds greater than expected. Immediately after the report WTI prices traded lower but then rallied closing $1.29, 2.7%, higher at $45.33. Brent rose $1.44, 3.1%, at $47.18. Both oils posted fresh 5 months highs. So why the jump in prices? Because the EIA also reported that U.S. crude production declined further last week to 8.9 million bpd, an 18 month low, and almost 500,000 bpd less than the same time last year. I don’t know why anyone is surprised. A drop in the oil rig count of 70% to a record low and a 50% decline curve for those shale wells will do that. Also supporting oil prices was the dollar weakening after the Fed’s decision not to change monetary policy

This morning WTI is very quiet being up 9¢. Chatter.

Courteys of MDA Information Systems LLC

Natural Gas

The May natural gas Nymex contract expired yesterday down 3.7¢ at $1.995 setting one leg of many derivative products as well as the price of natural gas and power for those of you on unhedged managed products. While still cheap, natty is 22% higher than the multi-year closing low set March 3rd. Today the June contract becomes the prompt month and is down 5.7¢ at $2.094. This doesn’t surprise me for yesterday the June contract settled 15.8¢ higher than May and that is a mighty big spread for those two months. We need a little convergence. The weather is very for the 6-15 day time frame is very mild so expect some material injections of gas into storage in future storage reports. Speaking of the same, it’s Thursday and that means it’s EIA storage report day. The market is expecting an injection of 68 Bcf.

Elsewhere

You see the latest technology in passenger vehicles? Here’s a hint. It’s going to reduce the 1.1 million collisions a year between cars, and deer. A new night vision system for cars which uses infrared sensors to highlight objects in the dark is now available on high-end model BMW, Audi, Mercedes and Cadillacs at a stand alone cost of around $2,000, although it’s typically bundled with other tech features. It’s just like the military systems we’ve all seen on TV or the movies that allow troops to see in the dark on the battlefield. However in this case the sensors lock on the object and then project the image on either the windshield or on a screen between the driver and passenger seats. There’s an option available that in addition to detecting images like animals, pedestrians, cyclists and of course, deer, turns on a spotlight that flashes a beam of light on the relevant object on holds it on the object as the vehicle moves toward the object. And if that alone isn’t cool enough, get this, when a deer is detected the spotlight flashes like a strobe to drive the deer away.